Is It Smart To Buy Hokuriku Electric Power Company (TSE:9505) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hokuriku Electric Power Company (TSE:9505) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Hokuriku Electric Power's shares on or after the 27th of September will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be JP¥7.50 per share, on the back of last year when the company paid a total of JP¥15.00 to shareholders. Looking at the last 12 months of distributions, Hokuriku Electric Power has a trailing yield of approximately 1.6% on its current stock price of JP¥938.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hokuriku Electric Power can afford its dividend, and if the dividend could grow.

View our latest analysis for Hokuriku Electric Power

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hokuriku Electric Power paid out just 3.0% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 0.0007% of its free cash flow in the last year.

It's positive to see that Hokuriku Electric Power's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Hokuriku Electric Power's earnings have been skyrocketing, up 84% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Hokuriku Electric Power looks like a promising growth company.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hokuriku Electric Power has seen its dividend decline 11% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is Hokuriku Electric Power an attractive dividend stock, or better left on the shelf? It's great that Hokuriku Electric Power is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Hokuriku Electric Power is facing. Our analysis shows 3 warning signs for Hokuriku Electric Power that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.